תקציר

Standard mean-variance analysis is based on the assumption of normal return distributions. However, a growing body of literature suggests that the market oscillates between two different regimes - one with low volatility and the other with high volatility. In such a case, even if the return distributions are normal in both regimes, the overall distribution is not - it is a mixture of normals. Mean-variance analysis is inappropriate in this framework, and one must either assume a specific utility function or, alternatively, employ the more general and distribution-free Second degree Stochastic Dominance (SSD) criterion. This paper develops the SSD rule for the case of mixed normals: the SSDMN rule. This rule is a generalization the mean-variance rule. The cost of ignoring regimes and assuming normality when the distributions are actually mixed normal can be quite substantial - it is typically equivalent to an annual rate of return of 2-3 percent.

שפה מקוריתאנגלית אמריקאית
עמודים (מ-עד)514-524
מספר עמודים11
כתב עתEuropean Journal of Operational Research
כרך242
מספר גיליון2
מזהי עצם דיגיטלי (DOIs)
סטטוס פרסוםפורסם - 16 אפר׳ 2015

ASJC Scopus subject areas

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  • ???subjectarea.asjc.2600.2611???
  • ???subjectarea.asjc.1800.1803???
  • ???subjectarea.asjc.1800.1802???

טביעת אצבע

להלן מוצגים תחומי המחקר של הפרסום 'Portfolio selection in a two-regime world'. יחד הם יוצרים טביעת אצבע ייחודית.

פורמט ציטוט ביבליוגרפי